The Quantitative and Qualitative Standard of Hours Worked Per Week in the Mississippi Research and Development Skills Tax Credit Framework

In the regulatory landscape of Mississippi’s corporate incentives, “hours worked per week” is defined as a mandatory minimum threshold of thirty-five (35) hours necessary to classify a position as a full-time, qualifying job. This standard serves as the primary eligibility gateway for the $1,000 annual tax credit per employee, ensuring the incentive is reserved for permanent, high-skilled research and development personnel rather than part-time or seasonal labor. 1

A comprehensive analysis of this requirement reveals that the thirty-five-hour rule is not merely an internal corporate policy but a statutory mandate embedded in the Mississippi Administrative Code. 3 While federal labor standards under the Fair Labor Standards Act (FLSA) frequently focus on the forty-hour threshold for overtime purposes, Mississippi has established the 35-hour benchmark as the definitive measure for “full-time” status across various state tax credit programs, including the Research and Development (R&D) Skills Tax Credit and the National or Regional Headquarters Credit. 1 This lower threshold provides a degree of flexibility for research environments where schedules may deviate from the traditional factory-floor model, yet it remains a rigid “bright-line” test: an employee working 34.5 hours does not, under any circumstances, qualify the employer for the credit. 1 Furthermore, the state expressly prohibits the aggregation of multiple part-time positions to reach a full-time equivalent (FTE); the credit is tied to the individual’s status, not the total volume of labor performed by a group of workers. 1

Legislative Genesis and the Tiered Economic Framework

The R&D Skills Tax Credit is authorized under Section 57-73-21(6) of the Mississippi Code Annotated. 3 To understand the application of “hours worked,” one must first examine the broader legislative framework of job creation incentives in the state. Mississippi utilizes a tiered system to categorize its 82 counties based on economic indicators such as unemployment rates and per capita income. 8 This system determines the threshold for the general Jobs Tax Credit, which often serves as the foundation upon which the R&D Skills Credit is added. 9

County Tier Classifications and Job Creation Minimums

The Mississippi Department of Revenue (MDOR) updates these designations annually. The “hours worked” requirement applies uniformly across all tiers, but the number of new full-time jobs required to trigger the base credit varies by the development level of the county. 1

The R&D Skills Tax Credit is unique because, unlike the general Jobs Tax Credit, it does not technically require a minimum total headcount increase to qualify for the $1,000 “add-on,” provided the positions created are specifically dedicated to research and development activities. 13 However, the positions must still meet the 35-hour-per-week definition of “full-time” to be eligible. 1

Administrative Guidance from the Mississippi Department of Revenue (MDOR)

The MDOR serves as the primary regulatory body for the certification and administration of these credits. 13 Guidance from the MDOR emphasizes that the credit is not “self-executing.” 3 A business cannot simply claim the credit on its year-end return without prior written authorization from the state. 3

The Certification and Approval Process

Before any credit is taken, a business must submit an “Application for Certification of Economic Development Incentives” along with a formal letter of request. 3 This application is increasingly handled through the MDOR’s online Taxpayer Access Point (TAP). 4 The request letter is a critical legal document where the employer must attest to the specific characteristics of each R&D position. 3

The MDOR specifically requires the disclosure of seven data points for each employee:

1. Job Title: Must reflect a research or technical nature (e.g., Engineer, Chemist, Biologist). 9
2. Job Purpose: A detailed description of the R&D activities performed. 3
3. Education Requirements: Minimum of a bachelor’s degree in a scientific or technical field from an accredited four-year institution. 13
4. Experience Requirements: At least two years of job-related experience in the specific field. 14
5. Hours Worked Per Week: A clear statement that the position involves 35 or more hours. 1
6. Salary or Compensation: Must be at a “professional level” and subject to Mississippi withholding tax. 1
7. Expected Hire Date: To establish the start of the five-year eligibility window. 3

The MDOR reviews this information to determine if the position truly qualifies as an R&D role. 3 The department has the authority to request additional substantiation, such as copies of diplomas, transcripts, or detailed payroll records, to verify the “hours worked” and the employee’s credentials. 3

The Mechanics of “Hours Worked”: 35 vs. 40 Hours

The decision to set the full-time threshold at 35 hours per week is a deliberate choice by the Mississippi legislature to accommodate the realities of professional and scientific work while maintaining a standard that is more rigorous than federal health insurance definitions. 1

Comparison with Federal Standards

In the United States, “full-time” is a fragmented concept that changes based on the regulatory context. 19 This fragmentation creates a “30-40 Gap” that businesses must navigate. 19

For a Mississippi business, an employee working 32 hours per week is “full-time” for the purposes of federal health insurance (ACA) but is “part-time” for the purposes of the Mississippi R&D Skills Tax Credit. 2 This distinction is critical for tax planning. If a business targets the ACA minimum of 30 hours for its researchers, it will inadvertently disqualify itself from state-level R&D incentives. 19

The Prohibition on “Combination” Jobs

A frequent inquiry from business owners involves the use of “job sharing” or multiple part-time staff to cover a single high-skilled role. 1 Mississippi law is unambiguous: “Part-time jobs may not be combined to add up to a full-time job.” 1

Consider a laboratory that requires 70 hours of chemical analysis per week. The lab chooses to hire two researchers, each working 35 hours. In this scenario, the business qualifies for two (2) R&D Skills credits, totaling $2,000 annually. 1 However, if the lab hires three researchers—one working 35 hours and two working 17.5 hours each—the business only qualifies for one (1) credit of $1,000. 1 Even though the total volume of “scientific labor” is identical (70 hours), the state only rewards the creation of permanent, individual full-time positions. 1

Qualitative Standards: What Happens During the “Hours Worked”?

Meeting the 35-hour threshold is only the quantitative half of the requirement; the qualitative half involves the nature of the work performed. 13 The credit is awarded for positions “requiring research or development skills.” 13

Defining R&D Skills (Chemist, Engineer, etc.)

The statute specifically mentions roles like chemists and engineers as benchmarks for eligibility. 9 However, the MDOR look beyond the title to the actual duties. 2 Support personnel, such as janitors, truck drivers, or general administrative staff, do not qualify for the R&D Skills Credit even if they work 40 hours a week and are physically present in the research facility. 2

For a position to qualify, the employee must be engaged in “research and development activities.” 13 While Mississippi does not strictly follow the Internal Revenue Code (IRC) Section 41 “Four-Part Test” for this specific $1,000 credit (as it is a job-based credit, not a spending-based credit), the MDOR often looks for similar markers of experimental activity:

• Technological in Nature: The work must rely on hard sciences such as chemistry, physics, or engineering. 15
• Process of Experimentation: The hours worked must involve testing, modeling, or systematic trial and error to solve technical uncertainties. 15
• Business Component Improvement: The research must be aimed at developing a new product or improving an existing process. 24

Education and Experience as Proxies for Skill

The MDOR utilizes educational attainment and prior experience as the primary filters for “skill.” 13 An employee must have a bachelor’s degree in a relevant field and two years of job-related experience. 14 If a business hires a brilliant, self-taught programmer with no degree to work 40 hours a week on R&D, that position will not qualify for the state credit, regardless of the person’s actual technical prowess. 13 The “hours worked” must be performed by a “credentialed professional” as defined by state regulation. 13

Accounting for Net New Jobs: Monthly Averaging

The R&D Skills Tax Credit is calculated based on the “net new” full-time jobs created. 9 This requires an annual comparison to a base period. 9

The Averaging Formula

The number of new full-time jobs is determined by comparing the “monthly average number of full-time employees subject to Mississippi income tax withholding for the taxable year with the corresponding period of the prior taxable year.” 9

This mechanism means that a temporary surge in hiring does not necessarily translate to a permanent credit. 9

$$\text{Net New Jobs} = \left( \frac{\sum \text{Monthly FT Headcount}}{\text{Months in Tax Year}} \right)_{\text{Current Year}} – \left( \frac{\sum \text{Monthly FT Headcount}}{\text{Months in Tax Year}} \right)_{\text{Prior Year}}$$

In this calculation, “FT Headcount” refers only to those individuals working at least 35 hours per week. 1 If an R&D engineer is hired in July and works 40 hours per week for the remainder of the year, they contribute 0.5 to the annual average (6 months out of 12). 2 Some incentives allow for pro-rating the credit in the first and last years of employment to account for these mid-year hires. 2

The “Add-Back” Requirement: Avoiding Double Deductions

A critical administrative rule that often surprises taxpayers is the “add-back” provision found in MDOR guidance. 16 This rule applies when a business takes a deduction on its Mississippi tax return for a salary (an expense) that also gives rise to a tax credit. 16

Mechanism of the Add-Back

According to the MDOR: “When a deduction on the Mississippi tax return also gives rise to a tax credit, the amount of that credit which is being used in the current return must be added back to Mississippi income or loss after any apportionment of income.” 16

The logic behind this is fiscal neutrality. If the state is providing a $1,000 credit for an employee, it does not also want the business to receive the full tax-reduction benefit of the deduction associated with that same $1,000. 16 Adding the credit amount back to taxable income effectively increases the state tax liability slightly, which, paradoxically, may increase the total amount of the credit that can be utilized (since the credit is limited to 50% of the liability). 9

Illustrative Add-Back Calculation

By increasing the taxable income by the amount of the credit, the state ensures that the incentive functions as a direct reduction of tax owed rather than a “double-dip” into the state’s revenue through both a deduction and a credit for the same labor cost. 16

Limitations: The 50% Liability Cap and Carryforwards

The R&D Skills Tax Credit is designed to encourage expansion, but it is not intended to eliminate a company’s state tax liability entirely. 1

Statutory Limitations

The total of the Jobs Tax Credit, the Headquarters Credit, and the R&D Skills Tax Credit is limited to 50% of the Mississippi income tax liability in any single tax year. 1

If a high-tech startup has 50 qualifying engineers, it has earned $50,000 in R&D Skills credits. 13 If that startup’s total state tax liability is only $60,000, it can only use $30,000 of its credits in the current year. 1

Carryforward Flexibility

Unused portions of the credit can be carried forward for up to five (5) years from the original year in which the qualified jobs were established. 1 This carryforward provision is essential for R&D-heavy firms that may have significant expenses and hiring needs in their early years but lack the profitability to generate a large tax liability. 9 When claiming carryforwards, the “oldest year’s unexpired credit” must be utilized first to prevent credits from expiring. 1

Practical Example: Zenith Aerospace Systems

Zenith Aerospace Systems is a manufacturer of drone guidance components located in a Tier 3 county (a “Less Developed” area). In 2024, the company expands its facility and hires 12 new full-time employees. 1

Employee Breakdown and Qualification

Analysis of Zenith’s 2024 Credits:

• Base Jobs Credit: Because Zenith is in a Tier 3 county and created at least 10 full-time jobs (Staff 1-11 qualify as full-time), the company receives a credit equal to 10% of the payroll for all 11 qualifying employees. 1
• R&D Skills Credit: Only Staff 9 and Staff 10 meet all criteria (35+ hours, technical degree, 2+ years experience). Zenith earns an additional $2,000 ($1,000 x 2). 9
• The “Hours” Failure: Staff 12 worked 30 hours per week. Despite having a physics degree and sufficient experience, they are classified as part-time for the purpose of the incentive. 1 Staff 12 contributes nothing to either the Jobs Credit or the R&D Skills Credit. 1

Filing Requirements

To claim these credits, Zenith must complete the following forms when filing its Mississippi corporate tax return (Form 83-105):

• Form 84-401: Tax Credit Summary Schedule. 17
• Form 83-450: New Jobs Credit Calculation. 17
• MDOR Approval Letter: Attached as proof of authorization. 3

Documentation and Audit Preparedness

Given the specific 35-hour-per-week mandate, the state revenue office may require rigorous documentation during an audit to ensure the credit was not improperly claimed for part-time workers. 3

Labor Cost Reconciliation

The MDOR expects a reconciliation between the general ledger, the payroll system, and the state withholding records. 33 A company should have procedures in place ensuring that the total labor hours reflected in job cost summaries agree with the timekeeping and payroll systems. 33

For “exempt” professional employees who do not clock in and out (such as senior engineers), the company should maintain a “usual hours worked per week” attestation or annual reviews that confirm the employee’s full-time status. 34 If an auditor finds that a “full-time” R&D professional was frequently out on uncompensated leave that brought their average weekly hours below 35, the credit for that individual may be clawed back. 1

Substantiation of Skills

The “skills” portion of the documentation is as important as the “hours” portion. 13 A complete audit file should contain:

• Degree Verification: Copies of the employee’s qualifying degree. 14
• Resume/CV: Evidence of the 2-year prior experience requirement. 15
• Detailed Job Description: Explicitly linking the 35+ hours of weekly work to technical R&D objectives. 3
• Payroll Records: Showing consistent professional-level compensation and state tax withholding. 1

Economic Impact and Legislative Outlook

As of 2025, the Research and Development Skills Tax Credit remains a cornerstone of Mississippi’s strategy to attract knowledge-economy businesses. 26 According to the 2024 Annual Tax Expenditure Report, these incentives are critical for offsetting the operational costs of high-tech firms in a competitive regional environment. 36

While some legislative proposals (such as SB 2783) have suggested allowing businesses to “pass through” these credits directly to employees to boost their net take-home pay, the current structure remains a corporate incentive designed to reduce business operating costs. 11 The 35-hour rule is consistently reaffirmed in regulatory updates, such as the 2025 MDOR Incentive Booklet, signaling that the state has no intention of lowering the barrier to entry for part-time labor. 4

Future Integration with Emerging Industries

The definition of “R&D Skills” is also expanding. While the statute still highlights “chemists and engineers,” the MDOR has shown flexibility in certifying roles in aerospace, biotechnology, and computer software development, provided the 35-hour and degree requirements are met. 14 As autonomous systems and data processing become more prevalent in Mississippi’s industrial parks, the “hours worked” in these fields will likely remain under close scrutiny to distinguish between routine IT maintenance and genuine technological innovation. 15

Conclusion: Strategic Implications for Mississippi Businesses

The Mississippi Research and Development Skills Tax Credit offers a clear, if demanding, path for businesses to reduce their tax burden while growing their technical workforce. 13 The thirty-five-hour-per-week requirement is the non-negotiable quantitative baseline for this incentive. 1 By setting a standard that is higher than federal ACA requirements but lower than the traditional forty-hour industrial week, Mississippi attempts to balance professional flexibility with the need for permanent, substantial job creation. 1

For businesses, the primary challenge is the administrative overhead of certification and the technicality of the “add-back” and “net new job” calculations. 9 Success requires a synchronized effort between Human Resources, to track degrees and experience; Payroll, to monitor the 35-hour threshold; and the Tax Department, to handle the MDOR application and year-end reporting. 3 Companies that master these details will find the R&D Skills Tax Credit to be a powerful tool for financing the high-level expertise necessary to compete in the modern technological landscape. 13

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